Alan Frazier controls one of the world’s biggest life sciences venture capital funds, so it would only be natural that he’d like to hide under a rock these days. But he was still willing to sit down with me at his 32nd floor office in downtown Seattle this week for a wide-ranging talk about the shellacking his industry is taking in the financial markets, and how biotech companies can adapt.

Frazier, for those who don’t know, is the founder and managing partner of Seattle-based Frazier Healthcare Ventures. The company, founded in 1991, has raised seven venture funds with a total of $1.8 billion for emerging biotech, medical devices, and healthcare services companies. Before that, he was one of the early executives at Seattle-based Immunex during its fast-growing 1980s heyday.

To hear Frazier talk now, the days when VCs could gamble on a promising technology and a driven management team, with the idea of creating the next Amgen, Genentech, or Immunex, are history. “The traditional venture capital model is broken,” he says.

Here’s what he had to say, edited for length and clarity. (Despite some grim observations, you won’t need to take a selective serotonin reuptake inhibitor like Prozac after reading this.)

Xconomy: You’ve been through a lot of downturns in your career before in biotech, like 1994 and 2001-2002 being the most recent. What’s different about this one?

Alan Frazier: The downturn is not just over the last two months. It really began two and a half years ago, when IPOs started to represent only a liquidity event, not a profit event. I think it’s challenging the traditional biopharma venture model. It’s more significant than we’ve ever seen in the past. That doesn’t mean biopharma venture is dead, it’s just different.

X: How’s it different?

AF: The venture capitalists will be making two very different types of investments than they have traditionally made. One is that VCs will be investing in public companies as a private security, a PIPE, or sometimes known as a VIPE, a venture investment in a public equity. They’ll also do companies like Calistoga Pharmaceuticals, with more targeted types of enterprises whose ultimate exit is a sale, not an IPO.

One thing I wonder about is the sustainability of a model where a sale is the goal. Founders do well financially but often others do not. In many cases, the employees are let go, meaning they have to look for a new job.

Would many people put in the added years of graduate school and postdocs in order to work at a biotech startup for a couple of years and then have to start over? Can we maintain the pipeline of innovative researchers needed in biotech when their only alternatives are to be scientific gypsies or to start their own startups?